Galaxy Securities: Gold still has strategic allocation value in the medium to long term.

Galaxy Securities released a research report stating that in the medium to long term, gold still has strategic allocation value, but the trend of upward movement needs to wait for actual interest rates to fall back and for pressures on the US dollar to ease. Currently, the mid-term support for gold still comes from global central bank gold purchases, US fiscal debt expansion, geopolitical risks, and uncertainty in the US dollar credit system. Especially with the US-Iran negotiations, the Strait of Hormuz shipping, and Middle East security arrangements not yet fully closed, there is still potential for a temporary rise in safe-haven demand. However, in an environment where the Powell strengthens policy discipline, US inflation rises again, and US bond yields remain high, gold is unlikely to return to a unidirectional upward channel in the short term. It is expected to mainly fluctuate at high levels and adjust its valuation. In the future, it will be important to observe the Personal Consumption Expenditure (PCE), non-farm payrolls, wage growth rates, and statements from the Federal Reserve. If inflation confirms a decline and expectations of rate hikes weaken, then gold prices may have a chance to open up again for an upward trend. Last week's major economic events: 1. US-Iran mutual attacks resurfaced, strait risk reappeared In late June, after the US-Iran signed a memorandum of understanding and made progress in the first round of negotiations around keeping the Strait of Hormuz open, initiating final agreement negotiations, ending the war in Lebanon, allowing Iran to sell oil, and unfreezing Iranian assets, the US Treasury also issued a general license temporarily relaxing sanctions on Iranian oil for 60 days. However, on June 25, Iran used a drone to attack the "Ever Lovely" cargo ship, claiming it violated the rules of passage in the Strait of Hormuz. Subsequently, the US Central Command carried out strikes against Iran, and the Iranian Islamic Revolutionary Guard Corps also claimed to have targeted multiple US deployments in the region. This was the first military confrontation between the US and Iran since signing and signing the memorandum of understanding, showing that although the agreement reduced expectations of all-out war and extreme supply disruption, there are still apparent weaknesses in implementation. In the short term, the strait navigation rules, ship inspections, Iranian oil sales, and US military counterattacks have once again become core variables for pricing oil, shipping, and risk assets. The logic of the risk premium returning due to the previous fall in oil prices may experience temporary fluctuations. In the medium to long term, core issues such as nuclear, security commitments, sanctions relief, the situation in Lebanon, and strait passage arrangements have not been fully resolved, and Middle East risks will shift from military conflict to continuous competition in executing agreements, shipping orders, and regional security architecture, continuing to impact the core of oil, inflation expectations, and gold pricing. 2. US inflation rebound, limited easing expectations On June 26, the US Department of Commerce released May PCE price data. The US May PCE price index rose by 4.1% year-on-year, the highest level since April 2023; the core PCE rose by 3.4% year-on-year, meeting market expectations and also reaching the highest level since October 2023. At the same time, the final value of real GDP for the first quarter was revised upwards from 1.6% to 2.1%, showing that the US economy still has some resilience. However, durable goods orders fell by 4.5% month-on-month in May, the largest decline in nearly a year, reflecting a weakening trend in manufacturing and capital spending. Overall, the US economy is in a situation where there is "no clear sign of a slowdown in growth yet, inflationary pressures are rising again, and corporate investment is becoming more differentiated," and this combination environment further weakens the basis for the Federal Reserve to quickly turn to easing. Although the market had hoped for a decline in oil prices following the US-Iran agreement, which would ease energy inflation and real interest rate pressure, the rebound in PCE shows that inflation stickiness is not only from short-term energy disturbances. Service prices, wage costs, tariff pass-through, and housing costs may delay the pace of inflation decline. In the short term, US bond yields and the US dollar index still have support. Precious metals and overvalued growth assets face constraints from real interest rates. In the medium to long term, with Powell strengthening policy discipline and inflation data rising again, the Federal Reserve policy path will increasingly depend on future PCE, non-farm payrolls, and wage data. Market pricing for rate cuts still needs to be adjusted. 3. Tariff threats resurfaced, friction over digital taxes intensified In late June, US President Trump threatened that if any country levies a digital service tax on US technology companies, goods exported to the US will face 100% tariffs and specifically named several European countries. Digital service taxes typically target the largest and most profitable global tech platform companies. Meta, Alphabet, Amazon, and other US tech giants are the main companies involved, making the issue of digital taxes an important topic in US-EU trade disputes. This time, the US is using high tariffs as a countermeasure, indicating that trade disputes are further extending beyond traditional goods trade, manufacturing tariffs, and industrial subsidies, into digital economic taxation, tech platform regulation, and cross-border profit distribution. In the short term, tariff threats may increase uncertainty in the implementation of US-EU trade agreements and disrupt European export companies, tech regulatory policies, and market risk preferences. If countries continue to push for digital service taxes, the US may use tariffs as leverage in negotiations, and Europe may reevaluate between tax sovereignty and trade stability. In the medium to long term, global digital economic rules are still in the process of reshaping, and contradictions between global profit distribution for US tech giants, national tax sovereignty, data governance, and platform regulation are difficult to resolve quickly. For asset allocation, tariff and digital tax friction will increase compliance costs for multinational tech companies and may exacerbate policy discrepancies between the EU and the US. The boundaries of global trade friction are expanding from physical goods to data, algorithms, platforms, and digital service pricing rights. 4. Political turmoil in the UK, increased pressure on Europe On June 22, British Prime Minister Stamer announced his resignation as leader of the Labour Party and stated that he would continue to serve as Prime Minister until a successor is elected. Over the past decade, six prime ministers have stepped down one after another in the UK, reflecting the country's long-term lack of stability consensus on fiscal constraints, public services, immigration management, industry policies, and foreign relations. Currently, the UK is still in a high-interest, high-inflation, and weak growth environment, and the increased political uncertainty may weaken policy continuity and business investment confidence, and increase the risk premium for British pound assets. In the short term, the market will focus on the new leader of the Labour Party, whether fiscal policy will continue, adjustments to public spending arrangements, and whether the Bank of England can maintain policy independence under inflation pressures. For Europe as a whole, the political turmoil in the UK, coupled with the slowdown in the Eurozone, energy price disturbances, digital tax frictions, and trade pressures, make European assets continue to face the dilemma of "resisting inflation" and "maintaining growth" policy. On one hand, inflation stickiness and energy risks limit the European Central Bank and Bank of England's rapid transition to easing. On the other hand, the weak repair of manufacturing, limited fiscal space, and political uncertainty weaken economic growth resilience. In the medium to long term, European risks are not limited to changes in individual national political situations but are structural pressures resulting from fiscal discipline, industrial competitiveness, energy security, and the trade environment. European stocks, bonds, currencies, and assets may continue to be priced repeatedly between policy expectations and political risks. 5. Global major asset performance From June 22 to June 26, global assets traded around the themes of "repeated US-Iran agreement execution, US inflation stickiness intensification, cooling of AI trading congestion, repricing of US interest rates. Commodities, the US-Iran agreement triggered a drop in oil prices, easing energy inflation and real interest rate pressures, but gold faced adjustment pressures. In the equity market, tech-heavy indices were under pressure, and Asian tech sectors experienced increased volatility. The main disruptions in the market came from: the US-Iran mutual attacks, which raised geopolitical risks and, in turn, the Strait of Hormuz shipping risk; high interest rates indicating a reluctance to quickly ease by the Federal Reserve; and AI trading congestion, which led to valuation and liquidity pressures. Major assets: - Gold: Gold prices shook and fell. As of June 26th, COMEX gold futures closed at $4,078.70 per ounce, a 3.43% decrease from the previous week; while London gold closed at $4,088.87 per ounce, a 1.66% decrease from the previous week. - Crude Oil: Oil prices significantly declined. As of June 26th, WTI crude oil futures closed at $71.99 per barrel, a 10.65% decrease from the previous week; while Brent crude oil futures closed at $69.23 per barrel, a 9.57% decrease from the previous week. - Bonds: US bond yields saw a significant decline. As of June 26th, the 2-year US Treasury bond yield closed at 4.07%, down 12 basis points from the previous week; while the 10-year US Treasury bond yield closed at 4.38%, down 8 basis points from the previous week. - Forex: The US dollar index showed stability and appreciation, while major non-US currencies experienced some depreciation. As of June 26th, the US dollar index closed at 101.36, a 0.60% increase from the previous week; with the Euro against the US dollar at 1.14, a 0.76% decrease from the previous week. In conclusion, the global market experienced volatility and adjustments as various economic and geopolitical factors played out during the specified period. Each major asset class reacted differently to the changing landscape, with some facing downward pressure and others showing signs of resilience. The key themes of the week, including US-Iran relations, inflation concerns, trade tensions, and tech sector performance, all contributed to the market movements observed. Investors will need to closely monitor these factors to navigate the evolving market conditions.